Thursday, March 3, 2011

Professor Krugman has been adamant that a) the Fed's QE2 has not led to commodity inflation and b) if there is any commodity inflation it is because of global warming (last year's Russian heat wave hammered the silver harvest).
Here's Real Time Economics:

The Federal Reserve needs to raise interest rates and stop pursuing a policy that may create inflation and financial market problems, a veteran central bank official said Wednesday, adding the current stance on monetary policy is helping fuel part of the recent surge in commodity prices.

Some of the jump in commodity prices reflects rising world growth and supply disruptions, but Federal Reserve Bank of Kansas City President Thomas Hoenig said “if you engage in a highly accommodative policy and you are the world’s reserve currency .. that does facilitate the demand side.”

“Any economic event is more than one thing,” Hoenig said, but “we know both have a role to play.” He added “we have to be sensitive to our monetary policy actions” and their impact in the U.S. and elsewhere, as “the rest of the world does have an impact back on us.”

Hoenig again advocated that the Fed should move interest rates higher from their current near-zero% mark, given that the economy is recovering and no longer needs a policy that was formulated to deal with an economic emergency.

“I really want to take away the punch bowl before the room gets drunk, because this punch is, I think, a little bit spiked,” the official said. “I’m not for tight monetary policy, I’m for non-zero% monetary policy,” he said.

Hoenig, who isn’t currently a voting member of the monetary policy-setting Federal Open Market Committee, was speaking in New York at the Council on Foreign Relations. He spoke ahead of Fed Chairman Ben Bernanke‘s second day of testimony before Congress, where he will be delivering the central bank’s semi-annual report on the economic and monetary policy outlook....MORE